Mar 29, 2008

Catemaco smoke

Mexico used to be one of the last remnants in the world allowing smokers to blow carcinogenic substances into their neighbor's face.

For that matter, a group of ladies at a local hangout in beautiful downtown Catemaco, chided me as a damn gringo polluting their atmosphere on an open air patio, while two blocks away, shit was rolling down the street from inadequate sewers.

So now, after tolerating 50% increases in my vice, I find out I may actually be generating an increase to the Mexican economy.

Background: The price of cigarettes to consumers in Mexico, and Latin America in general, remains low in comparison with other regions of the world. In Mexico, taxes represented 59% of the total price of cigarettes in 2006, compared to 75% or more in many high-income countries. The feasibility of raising taxes on cigarettes in Mexico—to both discourage consumption and increase revenues—is an important policy question.

Methods: Using household survey data, we undertake a pooled cross-sectional analysis of the demand for cigarettes in Mexico. We use a two-part model to estimate the price elasticity of cigarettes. This model controls for the selection effect that arises from the fact that the impact of price on the decision to smoke or not is estimated using all households in the dataset.

Results: The results indicate that price is a significant factor in household decisions concerning smoking and the number of cigarettes smoked. Holding other factors constant, our simulations show that a 10% increase in the cigarette tax in Mexico—calculated as a percentage of the price—yields a 12.4% increase in the price to the consumer, a 6.4% decrease in consumption of cigarettes and a 15.7% increase in the revenue yielded by the tax.

Conclusion: In Mexico, there are strong arguments for increasing cigarette taxes. Revenue raised could be used to further prevent tobacco consumption and to finance current funding shortages for the treatment of diseases related to smoking.


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